Money Forum World

Olga · Joined: 08 Nov 2007 Posts: 2182

How can the stock market be doing so well in a sluggish economy ?
Im new to stock market investment and still learning how the whole thing works, but how can the stock market be doing so well Dow hitting unprecedented highs.etc while all expectations point to a sluggish economy real estate going down, increasing unemployment, increasing inflation..etc ???? Shouldnt the stock market be going down now taking a bearish pattern ????

Jeanne Humphrey · Joined: 08 Nov 2007 Posts: 2164

Remember you're purchasing businesses, not stocks. Corporate profit margins are at record levels. From a historical perspective, interest rates are low, and money is sloshing around pretty freely. businesses continue to post productivity gains. Maybe not essentially in domestic markets where there was some softening in the buyer, but international demand remains hard.

As long as corporate America can continue to post income growth, the stock market will do good.

Denver · Joined: 08 Nov 2007 Posts: 2173

Post 911 era.

The stock market is doing good because people are finding confidence to invest back in the market.

After 911 after Bush declared war on Iraq everyone pulled out their investments and the Dow plunged from 12k to 8k.

Now that we have two strong Democrat candidates running for office and their intentions to take off troops, FUTURE STOCKS are increasing.

War is one of the major reasons people lose confidence in investing. It can have a dramatic affect on economy.

War isn't free. Were spending 200 billion this year financial support the war. That means there won't be any social security for the U.S. citizens when they retire.

In the past, people depended on social security to help them when they retire. Now, you must find other ways to fund your retirement like 401k and IRAs.

What America needs is a change. Well see one soon.

Lorene B. · Joined: 08 Nov 2007 Posts: 2039

My feeling is that the price of stocks is determined by what people are wanting to pay for them. Psychology is far more important than economics. Remember that you're purchasing stocks, not businesses. Look at the charts of the individual charts. Turn off the evening news. The charts dont lie.

Jonathan · Joined: 08 Nov 2007 Posts: 2155

The world is flush in money., we're to get buyouts and people putting more and more money in the market. In other words the Federal Reserve is creating another asset bubble. Real estate popped and stocks will be next. The only question we have now is how far will it go?

B&B · Joined: 08 Nov 2007 Posts: 2095

I agree with you. But, as you may know, price doesnt generally reflect quality. you may be able to say that purchasing the average stocks now is like purchasing 20 year old sedan for about 60k. One believable explanation for this condition is the weight of money argument. People just have too much money. Since too much money chasing so not many investment product, the result if inflation in the stock market. another thing to ponder. You said the stock market is doing so well because its going up. But what could happen if the price of your favourite food and gadgets goes up by 30%? could you say that theyre doing well? If yes, for whom? keep in mind price increase, if not warranted with quality increase, is inflation. It means were paying more for the same thing. Still think the stock market is doing well?

Diana English · Joined: 08 Nov 2007 Posts: 2158

Indeed real estate could derail things. that's more of a concern than the other factors you mentioned now. So far it hasn't happened. The low interest rates are making the stock market the only viable choice for investments now and all the money pouring into IRAs and 401ks is behind things nicely.

you're surely correct to be worried that it may not continue, but historically stock prices overall aren't unreasonable. In fact some are downright cheap. Others are somewhat expensively priced. But with 4.6% interest rates what other alternatives are there?

Mallory R · Joined: 08 Nov 2007 Posts: 2113

as an example,, take Caterpillar,, their sales last quarter in the U.S. was down 9%, but sales abroad was up 14%,, and by having a big presence abroad where every currency in the world is higher against the dollar,, they made nearly 4% in currency exchange alone.. businesses that are active in Europe and China and Latin America are earning money, but not much comes from their U.S part. Just having investments in the foreign countries has made them tons of money due to weak dollar,, makes the foreign investment go higher. The U.S. economy will continue to fall,,

Denver · Joined: 08 Nov 2007 Posts: 2173

You are perplexed.

The economy is sluggish ONLY IN THE UNITED STATES OF AMERICA.

All the 30 businesses included in the Dow Jones Industrial Average have functionings all over the World.

Jeanne Humphrey · Joined: 08 Nov 2007 Posts: 2164

In addition to the whole international issue which is correct, but was covered pretty well by last responders its most likely worth mentioning that when viewed on the base of P/E, the stock market really isnt doing all that well.

P/E multiples are more compressed now than they were before the recent run up in the stock market. Investors arent wanting to pay as much for income as they used to be. Its just that income have been growing so fast that it hides the effect when you're just looking at prices.

D Jordan · Joined: 08 Nov 2007 Posts: 2133

mark my words: correction is coming